New York (AFP) - Stocks rallied while the dollar slumped against rival currencies on Thursday after news of lower US inflation dimmed expectations of more aggressive Federal Reserve rate hikes.
The consumer price index (CPI), a key measure of inflation, rose at an annual pace of 7.7 percent in October.
That was below analyst expectations and a dip from the 8.2 percent rate recorded in September.
The dollar plunged more than four percent against the yen, while the pound jumped 3.2 percent against the greenback and the euro rose two percent.
Meanwhile, Wall Street stocks surged, with the Dow ending 3.7 percent higher with a nearly 1,200-point jump.
The broader S&P 500 jumped 5.5 percent and the tech-heavy Nasdaq Composite index soared 7.4 percent.
"I don't recall having ever seeing the Nasdaq being up seven percent ever (and) I've been watching the markets for over 50 years," Peter Cardillo of Spartan Capital Securities told AFP.
"Inflation has finally started to drop like a rock in the US and this is the best news that anyone can expect," added AvaTrade analyst Naeem Aslam.
He expects that the Fed will still continue with rate hikes, though at a slower pace.
The Fed's benchmark lending rate currently stands at between 3.75 to 4.0 percent, the highest since January 2008.
Investors have been keenly watching for signs that Fed policymakers will pivot away from their aggressive 0.75 percentage point hikes or pause them altogether.
Matt Weller at StoneX said that after the softer inflation reading, traders are now pricing in an 80 percent chance that the Fed will shift down to a 0.50 percentage point interest rate hike and now see rates peaking below 5.0 percent.
"There's optimism that the worst of the selling may be behind us," on equity markets, which are down heavily this year.
Covid and crypto
Markets are grappling also with the impact of strict zero-Covid measures in China, with supply chains and activity slowed by harsh lockdowns and testing policies.
"China's domestic demand is weak and their key trading partners are entering recession territory," said Edward Moya at OANDA trading group.
The crypto world has meanwhile been rocked by a surprise decision from Binance -- the world's biggest cryptocurrency platform -- to scrap a possible acquisition of rival FTX.com a day after disclosing it had signed a non-binding letter of intent to buy it.
The near-collapse of FTX has plunged bitcoin to a two-year low.
"FTX's slump from over a $32 billion valuation to zero in less than a few days raises numerous issues," said Stephen Innes at SPI Asset Management.
"Prominent investors are wearing eggs on their faces after diving in head first."
He added that gold and silver would be the biggest beneficiaries of the crypto fallout with investors looking to the trusted precious metals for stability.
Key figures around 2130 GMT
New York - Dow: UP 3.7 percent at 33,715.37 points (close)
New York - S&P 500: UP 5.5 percent at 3,956.37 (close)
New York - Nasdaq: UP 7.4 percent at 11,114.15 (close)
EURO STOXX 50: UP 3.2 percent at 3,846.56 (close)
London - FTSE 100: UP 1.1 percent at 7,375.34 (close)
Frankfurt - DAX: UP 3.5 percent at 14,146.09 (close)
Paris - CAC 40: UP 2.0 percent at 6,556.83 (close)
Tokyo - Nikkei 225: DOWN 1.0 percent at 27,446.10 (close)
Hong Kong - Hang Seng Index: DOWN 1.7 percent at 16,081.04 (close)
Shanghai - Composite: DOWN 0.4 percent at 3,036.13 (close)
Euro/dollar: UP at $1.0219 from $1.0076 Wednesday
Pound/dollar: UP at $1.1724 from $1.1544
Dollar/yen: DOWN at 140.67 yen from 145.58 yen
Euro/pound: DOWN at 87.10 pence from 87.26 pence
West Texas Intermediate: UP 0.7 percent at $86.47 per barrel
Brent North Sea crude: UP 1.1 percent at $93.67 per barrel
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